In an earlier but extremely popular posting entitled –Hiring Portfolio Managers? Go for the older guys! – I hinted that age discrimination, at least when it comes to the investment industry is a bad idea, even if it is endemic. I have no supporting statistics, but I can assure you that I have expressed an interest in many job openings recently (not just as an experiment either) and despite my modestly accomplished career history there hasn’t even been one call back. I asked my daughter what she thought the reason was and without hesitating said: “Dad, you’re too old!”

I am not suggesting that training young folks for a career in finance should be avoided. Rather that quantitative and fundamental analysis skills combined with enthusiasm need to be tempered by wisdom and experience. One comment I especially liked in response to my blog post follows:

“As the former head of global recruitment at a large investment firm, I highly agree. Our MDs wanted experience and those managers who had withstood a large downturn in the market so that they had that experience. Performing well in a good market is not difficult; knowing what to do when the markets are crumbling is something only experience can bring!” Alice J. Goffredo, Principal at Goffredo Consulting Group Inc.

Kudos to Alice. It generally takes more than one cycle to learn much about markets and the potentially devastating fallout from volatility. And even with experience and complex risk modelling, most PM’s are constrained by guidelines and client policy in various ways that prevent them from acting in front of bear markets (policy guidelines that prevent them from timing markets or even deviating slightly from their alpha-generating investment style; more money to get invested just keeps coming in etc.).

It takes guts to do what is right to skate client funds out of an ugly market (selling stuff at a loss to restructure a portfolio for higher alpha when market goes higher). I cover alot of this in my book “A Maverick Investor’s Guidebook” published last year. Here is an excerpt from Chapter 10:

“Even though it is extremely difficult (perhaps impossible) to consistently predict market declines, there’s plenty of evidence to suggest you can do something about your circumstances once the proverbial poop hits the fan. Fund managers often respond differently depending upon depth of experience or temperament:

• Some are no more experienced (or no smarter) than retail clients—they panic and sell at the bottom of markets.

• Some proclaim a new respect for caution and hold more cash and bonds…after selling at the bottom.

• Some say they’re cautious and secretly buy stuff, expecting a rebound (only a “little” dishonest, but this is not a business suited for even “a little” dishonesty).

• Some boldly acknowledge they didn’t see the bear coming, apologize, and admit that they are buying cheap assets aggressively “near” the bottom (mavericks).

Asking tough questions will enable you to determine whether you’re talking to a fellow maverick or not. Don’t be afraid to sound stupid—it’s your money we’re talking about here and not your ego. You may want to stay with the big firm you’re banking with for convenience or choose to find a smaller firm more specialized in managing money for individuals. It’s much easier to learn about what motivates the professionals in a smaller wealth management boutique and discover whether or not their investment style is consistent with your own beliefs, and you will receive a far more customized level of service.”

Unfortunately, firms will continue to hire inexperienced folks for jobs that require experience. Inexperienced portfolio managers will succumb to the general malaise that infects the financial community in crappy markets; they won’t sell and worse, won’t buy when they should. Even if they are smart enough to know they should buy, committees dominated by elder managers with little investment acumen will bully them into docility.

Bummer!

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About Mal Spooner

Malvin Spooner is a veteran money manager, former CEO of award-winning investment fund management boutique he founded. He recently authored A Maverick Investor's Guidebook which blends his experience touring across the heartland in the United States with valuable investing tips and stories. He has been quoted and published for many years in business journals, newspapers and has been featured on many television programs over his career. An avid motorcycle enthusiast, and known across Canada as a part-time musician performing rock ‘n’ roll for charity, Mal is known for his candour and non-traditional (‘maverick’) thinking when discussing financial markets. His previous book published by Insomniac Press — Resources Rock: How to Invest in the Next Global Boom in Natural Resources which he authored with Pamela Clark — predicted the resources boom back in early 2004.

2 Responses to Hiring…..? Go for the older guys! Part deux.

Interesting discussion that highlights not only the experience gap but also a skills gap. I have found that many folks (young and old) excel when they know exactly what to do. As investment professionals we are always making decisions with incomplete and imperfect information. So there are usually no clear answers only choices and trade offs to weigh. I recently had a conversation with a younger coworker who was being delegated more discretionary authority. He asked me the question ” how will I know what to do when…” I gave him a less than satisfactory answer ” you will know it when you see it”. Thinking and acting intuitively comes from experience and can’t be learned in a classroom. Unfortunately too many people want rules to follow ” when x happens do this”. The market, indeed life is too dynamic and unforgiving to allow that.

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